Getting a business loan is easy in most cases. The business owner just needs to fill out an application form with a particular lender to get a business loan. Along with filling out the application form applicants must fulfill the eligibility criteria of that lender. All lenders require similar details through an application form. Of course, different loans have specific forms that you need to fill out if you want to take advantage of a particular type of business loan. Whatever the type of business loan, all require similar documents, so it would be wise to get more information in advance before applying. In today's era, getting a business loan is an extremely easy task. Lenders like Poonawalla Fincorp make it hassle-free and convenientfor you.
Business loan application varies from loan to loan and lender to lender. But the information asked in the application form is the same and one must be prepared to answer the following questions once you decide to apply for the loan.
-Why do you need this loan?
-How much amount do you need?
-What other debts do you have, and who are your creditors?
-How much are you paying for your other debts?
Lenders are in the business of lending money and earninga profit on the loan in the form of interest. They require security and stability toreduce their risk. When it is about a business loanfor a start-up, it is not possible to show past data to prove how well the business is organized. This makes it difficult for startups to get a business loan.
Your business loan application should be genuine with all the correct and relevant details and supporting documents. There are some important points you should include in your business loan application to increase your chances of approval so that the lender feels confident about you and approves your loan application. Capital is one of the most important things that any business should have to run smoothly. Budding entrepreneurs have great ideas, whichwhen implemented can create new and impactful businesses. However, most of the time, the only barrier between ideas and starting a business is a lack of capital.
Things You Should Include in YourChecklist for Business Loan Application
A cover letter is apersonal business letter that can be addressed to the manager of a financial institution i.e., bank to discuss your loan application required for your enterprise. The letter is a way of requesting your lender to consider your loan application and provide you with suggestions on the same. The letter should also contain the details of your business like what your business is and the field to which it is related.
The first thing you need to do if you want to persuade a lender to give you a business loan is to write a business plan.
Lenders will want to know that you are running a reliable business and that you have the necessary knowledge and skills to turn your business into something great. Include absolutely everything with your business, including your goals, competitors, past and projected revenue and expenses, market analysis, and how you intend to grow your company. Show why you are the best person for the job, and when you have completed all that, write an executive summary that will draw the lender into your sight.
To secure a loan, many banks require you to have a sound financial plan that covers your business. It creates an introduction about who you are and what your business is. A business plan should be able to state the goals, mission of the business, and how it will be run to achieve all stated objectives. Remember, a good business plan means that you can convince the lender that the business has the potential to be successful.
It is essential to submit a sound business plan along with the loan application. The submittedapplication of business plan should include -
-Complete set of projected financial statements.
-Profit and loss statement.
-Cash flow and balance sheet.
Lenders obtain individual credit reports of applicants as part of the application process. However, to be sure, any lender must obtain their credit reports from all three credit rating agencies before submitting their loan application. Errors in a credit report can deprive you of loan approval. It is also necessary to clear these before starting the application process.
Sometimes your credit report can contain errors and if you are not careful, it can negatively affect your credit score. Therefore, it is always advisable to regularly monitor your business credit and personal credit files. If you see some errors, immediately contact a credit reporting agency to rectify and enhance the score by correcting the discrepancies, otherwise, no loan will be sanctioned by the bank if your credit rating is low.
Listing your available collateral is also an important thing to include in a business application. The list can include stocks and bonds, equipment, home equity, inventory, and receivables. To reduce risk, a lender may, at times, ask the borrower to pledge some asset as collateral. Demonstrate your understanding to your banker. Each collateral listed must be described along with its cost and current market value. It may also be required to provide documentation of the value. So, if you apply for a small business loan, be prepared with the documents and paperwork of your collateral. Some lenders like Poonawalla Fincorp offer a Business Loan without asking for collateral. In such a case, all you need to do is keep all your information and documentation ready and apply for a loan.
Business loans require applicants to submit their personal and business income tax returns for the past three years.
Depending on the business loan requirements a lender may require applicants to submit certain legal documents. Therefore, make sure you have the following documents with you before applying for a small business loan-
-Registration details of your business
-Franchise agreement if any
-Article of incorporation
-Copies of agreements if you have a third party
It is particularly important to mention the amount you need as a loan in the loan application. Also,specify how you will use that amount. If you are planning to buy new machinery, it should show the estimated value, including installation value, and then show the balance after calculating the total from the borrowed amount.
Lenders know that a business completely depends on the people who are working for it along with the business owner. These people include the management team, operations team, and technical team. Along with employees,lenders may also consider an outside consultant who is actively involved with the company.
It is possible that an applicant already has some debt running. A business loan schedule lets lenders know the status of any loans that are currently running. A business loan schedule will also display outstanding loans and loan amounts. It also outlines monthly payments to the borrower along with interest and payment dates. Therefore, business leaders need to know this before lending to business owners/applicants who already have other loans. This is also to ensure whether the borrower will be able to make the necessary loan payments.
To find a lender who will offer you a great deal, you must do a lot of research. Do not fall for offers that look attractive, without doing detailed research. Along with interest rate, consider other things such as processing fees, charges, and level of customer service, before finalizing a lender.
Getting a business loan from a lender becomes easy when you have proper financial details. Lenders will always want to check your balance sheet, cash flow statement and income statement to find out whether you can repay the loan. This means that if you are not keeping these records, it is time to start as they can help when applying for loans in the future.
How magical was the day when you discovered your career path? After a lot of research, putting in so much hard work, late nights, your heart and soul, you have become what you are today.